California Gov. Arnold Schwarzenegger talks about the tentative budget agreement with the legislature during a news conference at the Capitol in Sacramento, Calif., on Friday, Sept. 19, 2008.(AP Photo/Steve Yeater)

A coalition of Western states and Canadian provinces unveiled a far-reaching plan on Tuesday that would ratchet back greenhouse gas emissions from a broad expanse of North America and could serve as a model for future federal action.

The plan, by the Western Climate Initiative, would limit emissions across four provinces and seven states, including California and the entire West Coast. In order to do so, the agreement would create what's known as a cap-and-trade system.

Starting in 2012, the system would cap emissions from a wide range of industries, from electricity generation to transportation. A market would then be created in which companies within those industries would buy and sell the right to release carbon dioxide, methane and other gases that contribute to global warming. Companies having a hard time cutting their emissions would trade with others that had met their emission targets.

The initiative started in 2007 in response to growing concern about rising temperatures around the world. California began talking with four other states about coordinating their efforts to fight climate change, and those talks eventually spanned the Canadian border. Each of the initiative's member states and provinces will have to approve its own legislation to enact the plan.

Those states and provinces represent 20 percent of the U.S. economy and 70 percent of Canada's. But backers left no doubt Tuesday that they want the system to expand, perhaps to include all of the two countries.

"This is an important road map for what will be the most comprehensive climate program in North America," said California Gov. Arnold Schwarzenegger. "We're sending a strong message to our federal governments that states and provinces are moving forward in the absence of federal action, and we're setting the stage for national programs that are just as aggressive."

President Bush has staunchly opposed setting any hard limits on greenhouse gases. But both the Republican and Democratic presidential candidates, Sen. John McCain and Sen. Barack Obama, support creating a cap-and-trade system.

Meanwhile, 24 states nationwide are actively pursuing such trading systems, although not all together.

Six Midwestern states are considering their own carbon market. And 10 Northeastern states are close to launching the country's first cap-and-trade system to fight global warming, working together as the Regional Greenhouse Gas Initiative. On Thursday, the group will auction off "allowances" - essentially, permits to release carbon dioxide. Companies then will be able to buy and sell those allowances among themselves.

Link to the West

The Northeast carbon market will include only one industry - electricity generation. But backers hope eventually to connect that system to the one proposed in the West.

"New York stands ready to link our system with the Western Climate Initiative to create a cap-and-trade program that will protect our environment, safeguard our citizens and create a strong, clean-energy economy," said New York Gov. David Paterson.

Not everyone is convinced that cap-and-trade systems will achieve those lofty goals. They fear that consumer prices will rise as companies pass along the costs of buying greenhouse gas allowances.

"By levying an effective tax on carbon, a regional cap-and-trade program would dramatically increase costs to consumers in the West of virtually everything we buy, from energy to food to housing to clothing," said Britt Weygandt, executive director of the Western Business Roundtable. "Given current consumer anger over gasoline prices, I think that proposals like this will get a pretty cool reception at the household level."

Under the Western Climate Initiative proposal, each of the participating states and provinces would have to pass its own legislation to create the greenhouse gas trading system.

Individual plans

The plan gives each some wiggle room, letting participants choose their own ways to enact policies so long as they fit the broader framework.

The plan will dovetail with California's landmark global warming law - AB32 - which calls for cutting the state's greenhouse gas emissions back to 1990 levels by the year 2020. The California Air Resources Board, the state agency drafting ways to implement AB32, also helped create the Western Climate Initiative plan.

The regional plan would cover greenhouse gases emitted by power plants, factories and other businesses, starting in 2012. Three years later, it would expand to include emissions from transportation fuels.

States would decide for themselves how many of their allowances to auction and how many to grant for free, so long as at least 10 percent were auctioned. Environmental groups say that giving away allowances for free allows large emitters to profit without doing anything to clean up their act.

The plan also allows "offsets," in which companies that are having trouble cutting their greenhouse gas emissions pay for projects that fight global warming. But the plan limits their use, saying they can not account for more than half of the program's emission cuts.

The WCI-member states are Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. The member provinces are British Columbia, Manitoba, Ontario and Quebec.

The regional plan

To read the full proposal from the Western Climate Initiative, go to: westernclimateinitiative.org

What is cap and trade?

A cap-and-trade system sets hard limits on greenhouse gas emissions. It allows companies over the limits to buy emission rights from those under the limits. Limits decrease over time, forcing companies to further cut their emissions or buy more rights.